No Funeral for Blu-ray

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The high def disc format war is over. We all know that. After the format war ended, and Toshiba gracefully bowed-out, a funny thing happened: Prices of consumer Blu-ray players started to climb.

So when NPD Group (National Purchase Diary) announced that the unit sales of dedicated Blu-ray players dropped 40% from January to February, pundits everywhere were taken by surprise. Based on that one month sales figure, analysts and editors everywhere sharpened their editorial knives and began predicting the end of Blu-ray. Even my boss, PC Magazine editor Lance Ulanoff, believes that Sony has lost the war.

The thinking goes like this:

Blu-ray player prices are way too high. Where’s the $99 players?

DVD is good enough. After all, you can’t really tell the difference, particularly with upscaling DVD players.

Let’s take a look at some history. DVD emerged on the scene in 1997, when the first consumer players shipped. But DVD players were incredibly expensive—even as late as 1999.

The first consumer DVD players shipped in the US in March of 1997. As late as mid-1999, relatively mainstream DVD players were costing over $500.

At the time, DVD had little or no real competition. VCR prices were dropping, but the convenience of disc, plus the pristine image quality (compared to tape) swayed users.

The lack of substantial competition allowed DVD to ride the technology curve in a relatively normal way. Prices trended downward gradually as technology improved, and today we have upscaling DVD players for $50.

DVD media prices, on the other hand, stayed relatively high for years. It’s only in the past two years that prices regularly dipped under $20—maybe because of the arrival of the high definition formats. Now, of course, we see new, mainstream DVD releases at $15, and many older discs for well under $10.

Alas, Blu-ray wasn’t able to ride the technology curve as simply as DVD. When Toshiba threw the wrench into the works with HD DVD, Blu-ray players were rushed out the door. As Lance Ulanoff noted, many of these devices use cut-down PC technology, since the dedicated, high definition video chipsets aren’t really available yet.

After the first year, Toshiba began slashing prices of HD DVD players, with the lowest cost unit regularly available for under $200, with spot sales at close to that magic $99 price point occasionally happening. Blu-ray technology, being somewhat more complex, couldn’t play the price game as aggressively, but I bought a Sony BDP-S300 for under $350 last year.

Now, HD DVD is gone, and we’re seeing the first and second generation players priced more appropriately, given their bill of materials. Even so, 2.7 million Blu-ray players were sold in the US in 2007, not counting Playstation 3 sales.

Which brings up another point: Anyone buying PS3 gets a Blu-ray player. So you can safely assume that most PS3 buyers won’t buy a standalone player. PS3 sales have been steadily increasing over the past six months. No one really knows the impact of the PS3 on Blu-ray media sales, but the indicators are that Blu-ray content sales are up substantially this year, with Blu-ray disc sales up 351% the first three months of this year.

Now let’s throw in one more wrinkle: the economy. Whether you believe we’re in a recession or not, it’s clear that people are being more cautious than usual about their disposable income. With gasoline at $4 per-gallon, the sub-prime mortgage crisis hammering stock prices and job growth at anemic or negative levels, most people would consider paying $400 or more for a high def disc player something of a expendable luxury.

As for using the Internet to download high def content—that’s well and good for some things. But like many people, I both subscribe to Netflix and also own a bunch of DVDs on my own (and a burgeoning Blu-ray collection as well.) People like to collect stuff, view extras, and have their favorite movies, shows, and content right at their fingertips.

Meanwhile, the technology curve is marching on. It’s likely we’ll see sub-$200 Blu-ray players by the end of 2008, with those magic $99 players maybe making their appearance at the 2009 Consumer Electronics Show. Certainly we’ll see $150 players on the show floor then.

So let’s not plan the funeral for Blu-ray quite yet. Certainly Neil Young believes it’s going to only get better, announcing in early May that he would release his entire music archive on Blu-ray (According to MSNBC, Young was quoted as saying, “Previous technology required unacceptable quality compromises. I am glad we waited and got it right.”

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